Shelly Carlin Wall Street Journal Op-Ed Illustrates Why Pay Ratio Is Meaningless, Ripe for Repeal

Corporate Governance, Executive Compensation, Executive Pay Plan Design

This week, in a Wall Street Journal "Point & Counterpoint" article, HR Policy Association and Center On Executive Compensation Executive Vice President Shelly Carlin articulated the uselessness of the Dodd-Frank Pay Ratio in a substantive and thorough analysis of why the pay ratio's only possible use is to "inflame partisan sentiments" and "divert America's attention away from the underlying causes" of income inequality.  Ms. Carlin made three primary arguments against the pay ratio.  

• First, she argued that the pay ratio was irrelevant to investors, noting that pay levels for both workers and CEOs are set by the market and noting "to try to conjure a different interpretation ignores this basic economic fact."  Ms. Carlin adds that despite proponents' claims to the contrary, there is a complete dearth of academic research suggesting that employee morale is impacted by the ratio of CEO to worker pay.
   
• Second, Ms. Carlin argues that the astronomical estimated costs associated with compiling the information to formulate the pay ratio disclosure—which the SEC estimated at over $520 million annually—far outweigh any potential benefits.  This money will be spent by companies despite the fact that shareholder proposals related to pay ratios have received an average of 93% shareholder opposition.
   
• Finally, Ms. Carlin argues that the real intended use for the pay ratio is to embarrass companies and their CEOs, and it will do nothing to raise the wages of average Americans.

Heather Slavkin Corzo, the Director of the AFL-CIO's Office of Investment, provided the counterpoint, making familiar arguments in support of the requirement.